Self-employment Income

With few exceptions self-employment income is reported for households rather than individuals. Even in cases where values are reported for individuals, such as in Taiwan, a high percentage is assigned to the household head. Often children or the spouse of the household head are reported as receiving no income and are classified as unpaid family workers. This may lead to under-reporting of the labor income of younger and, perhaps, older household members.

To correct for this problem self-employment income is allocated to family members who are reported as self-employed or as unpaid family workers. The self-employment income of the household is allocated to the members using the age profile of the mean earnings of employees.

${YLS(a,j) = \gamma(a) YLS(j)$
$\gamma(a)= w(a)N(a,j)/\sum_x w(x)N(x,j)$

where YLS(j) is the self-employment portion of labor income for household j, YLS(a,j) is the self-employment portion accruing to all individuals in household j who are age a, w(x) is the average earnings of employees of age x and N(x,j) is the number of persons in household j who are self-employed or unpaid family workers, and $\gamma(a)$ is the share of total household self-employment labor income allocated to each household self-employed or unpaid family member who is age a.

In this way the total self-employment labor income generated at age a in each household is found, and summing across all households the total self employment labor income generated at age a is found. Dividing this by the total number of surveyed individuals age a gives the age profile of per capita self employment income. Then using the national population age distribution this age profile is adjusted to match the national control total.

Stata Code

Discussion